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Mar 27, 2006 - Issue#001
General Motors - Turnabout Situation of the Year?
A perfect example of a "contrary opinion" situation occured last week.
General Motors (GM) ($22.65) picked last Friday, March 17th, a "triple witching"
options expiration day, to drop the "bomb" regarding their earnings surprise (or
should I say lack-of-earnings surprise) for 2005.
It seems their accountants were a little off the mark; about $2 Billion worth.
As if that wasn't bad enough, they also will have to re-state earnings from
2001 through 2004.
The stock, predictably, tanked on the news.
The funny thing is: (1) the stock leveled off for the rest of the day and,
(2) the stock dipped briefly the following day, just enough to sweep up the
remaining mess, gathering in all the low hanging fruit (picking off the "stops"?)
and then, reversing, proceeded to climb upwards from there.
Something important you should know: Specialists, in order to be able to carry out
their primary function (maintaining a fair and orderly market) are allowed to act
on "inside" information. In fact, they are expected to.
Now, if I were a "conspiracy" theorist, this is what used to be called "gunning
the stops" or, borrowing from the Vietnam era, a "Search and Destroy Mission".
We know what motivated the sellers (the bad news), but what motivated the buyers?
Why were they so willing to step up and do everyone a favor by taking all that
stock off their hands? Strictly out of the goodness of their hearts? Yeah, right.
Didn't they hear all the "talking heads" on CNBC bad mouthing the GM management?
How only "dumb" investors would own GM stock? A company on the verge of bankruptcy?
Of course they heard it. Who didn't hear it? Just listen to the TV.
There's an old saying on Wall St: If you see a Swiss banker jump out a window,
follow him... he's probably going to make a fortune on the way down.
What else did they know? Did they know something that the rest of us didnt?
For instance, did they know that GM was about to make an employee buy-out offer
to get out from under burdensome labor costs? It's a start.
Let me tell you how that works: If you don't take the silver dollar, you get the
silver bullet. These people are serious.
So what else is GM planning? You can bet their planning something. Their stock is
lower than it was back in 1987. This is exactly the kind of challenging situation
tailor made for some key executive to make his reputation.
So what happened so far? Every one that "shorted" the stock has been losing money.
Every one that sold has to pay higher to get it back; something most investors
don't like to do, but they will. This is the only business in the world where the
customers refuse to buy unless the price has gone up 50 - 100%.
There is a long record of Dow components going from the worst performers one year
to being the best performers the next year. They even have a catchy phrase for it:
"Turn about situation of the year". It happens over and over and over again.
Wouldn't it be something if that is what is going on right now?
Comments? Ideas? Feedback? Let me have it, right between the eyes! I'd love to hear from you. Just reply to this zine and tell me what you think!